Steinhauer, a four-time U.S. Solheim Cup team member, shot a season-best, 6-under 66 on Friday to finish at 11-under 133 at the halfway point of the four-day tournament at Panther Creek Country Club.
But the 44-year-old Steinhauer lost a stroke to Sorenstam, the defending champion who birdied her first four holes on the way to a 65.
"When you have Annika behind you, it's not always easy. She's a great player and obviously had a real hot one today," said Steinhauer, bidding for her first win since the 2006 Women's British Open.
Sorenstam, defending the last of her 69 career LPGA Tour titles, said her game is rounding into shape in her seventh tournament since returning from a ruptured disk in her neck.
"I thought I played flawless today. I really did," Sorenstam said. "I had a lot of chances out there. I was never really in trouble and I'm very, very pleased. I drove it well, putted well. Sounds funny when you shoot 7 under to say you left a bunch there, but I really feel I did that. But making some great progress."
Christina Kim, who has three top-ten finishes in her last five tournaments, was second at 9 under after a 66.
Kim says the leaders will have to keep posting low scores for a shot at the winner's $195,000 share of the $1.3 million purse.
"It's a birdie-fest. You have to go low to even have a chance at getting that title," Kim said.
Mi Hyun Kim, the SemGroup Championship winner in May, was four strokes back at 7 under along with tour veteran Marcy Hart, whose best career finish is a tie for third in the 2006 Wegmans LPGA. Mi Hyun Kim shot a 67, and Hart had a 69.
Rachel Hetherington (69), Janice Moodie (69), Becky Morgan (67), Ai Miyazato (70) and Jin Young Pak (67) were five shots back at 6 under.
Steinhauer, whose seven career title include two majors, had seven birdies and just one bogey, sinking three putts of 20 feet or more.
"I'll tell you the difference is I made a lot of putts again today ... That's been the difference and it sure is fun to watch them go in," Steinhauer said.